The International Monetary Fund (IMF) estimates the 20 largest industrial nations (known as the G20) are on course to see their combined government debt exceed 100 percent of their combined gross domestic product (GDP) within three years.
Debts of this size simply cannot be financed, let alone repaid. The first step in this great unraveling is underway — the collapse of the euro.
In March 2010, I wrote:
Like dominoes, the highly indebted economies of Europe are going to topple. Greece was first. But plenty more problems are coming. Italy has no way to meet its obligations. Nor do Portugal or Spain…
Events over the past two weeks in Greece should give you plenty of warning governments all over the world have too much debt.
What will the U.S. do when a major European financial institution fails? If the resulting contagion causes one of America’s major banks to fail, what will the U.S. government do?
The answer, my friends, is simple: It will print, print, print, and print. Here’s the important fact to remember…
The United States is the only government in the world that can actually afford to underwrite the world’s banking system. That’s not because we have any real savings, but because we control the world’s reserve currency. It’s a paper standard, which means we can always print more of it.
The U.S. announced exactly that in November 2010, setting up an enormous $1 trillion bailout fund for the euro via the International Monetary Fund and beginning a new round of quantitative easing — this time $600 billion of new dollar reserves will be injected into the U.S. Treasury market.
Despite the enormous buying of Treasuries by the Fed, long-term Treasury bond rates have soared on these announcements. Investors have begun to flee the U.S. dollar into all other forms of savings:
- Coal and oil are trading at two-year highs.
- Corn, soybeans, wheat, cotton, and sugar are trading near multi-year highs.
- Gold and copper are trading just shy of record highs.
- Silver is trading near a 30-year high.
- Even long-depressed natural gas is now rallying.
This list sums up the arguments and warnings we’ve been giving for years. We are not going to have a crisis. We are in a crisis right now.
What’s the best way to protect yourself?
Well, if you had done nothing this year but buy real money (gold) and short U.S. Treasury bonds, you would be sitting on a significant profit.
Take a look at the chart below. Gold (the blue line) is up about 16 percent in the last year. The Treasury bond fund (the black line) is flat.
The credit of the U.S., which backs every bankrupt government in the Western world, must soon collapse. Our ongoing debts and deficits are too big to be financed in sound money. Thus, the Fed is turning on the printing presses and they will be running for a long time.
The time to act is now.
It’s critical you orient your investments so you’re long on real money and real assets and short on bad credits — starting with the U.S. government. Buy the things people need — food, energy and money. Sell things that are vastly encumbered — especially the stocks of corporations that are deeply in debt.
As you look through your portfolio, the first thing you ought to consider adding is silver. Silver is the best hedge against paper money for one simple reason: When it’s not used as money, there’s very little demand for it. When it is used as money, there’s a tremendous demand for it.
I expect gold will continue to move higher, too… much higher. If you wanted to put the U.S. dollar on a 10 percent gold-reserve standard, the price of gold would have to reach nearly $10,000 an ounce to back all the outstanding money of zero maturity. Assuming gold reaches this price, the price of silver at its full monetary value (at a 15:1 ratio to gold) would be around $650 an ounce.
I know these prices seem ludicrous today… but those numbers are real.
Remember, we’re a long way from the end of this crisis. Most people don’t even own any gold or silver yet. So now is the best time to hedge your portfolio… before the rest of the world realizes a massive inflation is underway.
–Porter Stansberry with Braden Copeland
P.S. What most Americans don’t realize is this crisis is already well underway. I’m sure you don’t believe me, but please let me show you just a tiny fraction of the evidence that surrounds us. Take a look at these simple facts in the presentation I’ve posted here. I know you will be surprised. Then, you can make up your mind for yourself.